Sequential Models of Bertrand Competition for Deposits and Loans under Asymmetric Information

Frederique Bracoud ()

No KERP 2002/15, Keele Economics Research Papers from Centre for Economic Research, Keele University

Abstract: This paper analyzes sequential games of double-sided Bertrand competition in the deposit and credit markets, when banks are free to reject customers and cannot distinguish among borrowers. The timing of competition is crucial when customers apply once. Interest rates are pushed upwards when the deposit market is the first to be visited, whereas rates are submitted to downward pressures otherwise. With multiple applications, the order of competition does not matter. Multiple applications in one market weaken competition in that market and generate outcomes similar to the case when this market is visited in a second stage in the single-application framework.

Keywords: Financial intermediation; Bertrand competition; Dual competition; Adverse selection; Credit rationing (search for similar items in EconPapers)
JEL-codes: D43 D82 G21 L13 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2002-09
Note: Revised version of F. Bracoud (1999), Bertrand Competition for Deposits and Loans under Asymmetric Information: Stiglitz andWeiss Revisited, mimeo, Liverpool Research Papers in Economics, Finance and Accounting 9901.
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Working Paper: Sequential Models of Bertrand Competition for Deposits and Loans under Asymmetric Information (2002)
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